Centric Health could have an exceptional 2019, Beacon Securities says

Following the company’s third quarter results, Beacon Securities analyst Doug Cooper is maintaining his bullish stance on Centric Health (Centric Health Stock Quote, Chart: TSX:CHH).

On November 14, Centric Health reported its Q3, 2018 results. The company lost $871,000 on revenue of $40.5-million, a topline that was up marginally over the $40.1-million in revenue the company posted in the same period last year.

“In the third quarter, we announced a new strategic direction and took a number of significant steps towards repositioning the company for profitable growth,” CEO David Murphy said. “Third quarter results were in line with our expectations, as we absorbed the first full quarter impact of previously disclosed regulatory changes on our specialty pharmacy business. Our business re-engineering plan remains on track for completion by the end of 2018, which will allow us to offset the bulk of this impact and return to normalized results in Q1 2019.”

Cooper says the quarter was about what he expected, and says he knew that due to regulatory and pricing changes this would be the weakest quarter of the year. But the analyst

“Our thesis has not changed,” Cooper says. “In fact, we believe that if successfully executed, shares of CHH could have an exceptional 2019. In our opinion, it all starts with the sale of its surgical segment. At a current price of $0.25, the stock is trading as if there are significant going concern issues. There is no doubt that debt is higher than we would like and the company has had to get waivers from the bank (note it has them until the end of Q1/FY19). However, we believe the process to sell its surgical segment is underway and we would expect a transaction to be consummated prior to the end of Q1/FY19. While the company is making progress on other fronts (ie. restructuring, Karie, cannabis), better visibility towards the sale of this segment is the key to unlocking value.”

In a research update to clients today, Cooper maintained his “Buy” rating and one-year price target of $0.90 on Centric Health, implying a return of 283 per cent at the time of publication.

Cooper thinks CHH will post Adjusted EBITDA of $11.2-million on revenue of $164.5-million in fiscal 2018. He expects the company will generate EBITDA of $13.1-million on a topline of $144.0-million the following year.